Sprint investors awarded class action status in Nextel merger suit

In 2005, Sprint Corp. merged with fellow mobile phone giant Nextel, creating one of the world’s largest mobile companies. However, some Sprint investors believe they were misled about the financial impact of the merger, and after a court’s ruling, they now have the ability to bring a class action lawsuit.

U.S. District Judge Eric Melgren in Kansas City ruled on March 27 that an investor lawsuit against Sprint and former CEO Gary Forsee may proceed with class action status. In the lawsuit, investors claim that Sprint and Forsee misled investors by inflating stock prices following the merger.

The suit claims that Sprint encountered financial difficulties directly following the merger, between October 2006 and February 2008. As a result of technological difficulties merging the networks, Sprint lost thousands of customers. However, the suit says, Forsee continued to trumpet the sale and said in both press releases and regulatory filings that Sprint was receiving billions in benefits from the merger.

According to a Reuter’s report, the same day that Dan Hesse replaced Forsee as CEO, the company disclosed that it had lost 683,000 customers in three months. The company’s stock price fell by 25 percent that day, the suit says.

Melgen ruled that the case may proceed as a class action because the plaintiffs “are substantially similar, rely upon much of the same evidence, and will require many of the same witnesses.” Melgen also said, “A single class action is a preferable and superior method to duplicative litigation by individual parties.”

The lawsuit comes at a poor time for the Sprint executive board. According to reports, Sprint is eyeing a merger with T-Mobile US INC, although U.S. regulators have come out against the deal.